The big switch

11 / 03 / 2013

WHEN Lufthansa Cargo announced that it had selected the iCargo system of IBS to provide it with a next-generation IT platform, it surely marked a significant milestone for the air cargo industry.

While many small-to-medium-sized airlines have already made the leap to next-generation platforms, to-date many of the traditional giants have held out, reluctant to embark on what Oliver Evans, head of cargo for Swiss Air Lines, memorably compared to open-heart surgery.

But as VK Mathews, founder and executive chairman of IBS Group, points out, the pressure to change has now become irresistible. “Legacy systems use languages such as Assembler and Fortran and you can no longer get people to maintain them. If you do find the resources, they are prohibitively expensive. So it is only a matter of time before the remaining airlines make the change, and this decision from Lufthansa Cargo is a clear signal it is time to move.”

And in fact he sees signs that the tectonic change is now starting to occur. “Turkish, Malaysian, Cathay – all are now out in the market doing RFPs. Now that big players, serious players are taking the plunge, that should give confidence to other carriers.”

The Lufthansa contract is a huge one and, as might be expected from the German carrier, it undertook an extremely thorough selection process, taking two years and costing €7m all by itself. “They started with 400 different options, looking at getting best-in-class solutions from different vendors, before opting for one system that could do everything,” Mathews says.

It was the most elaborate RFP that IBS had ever responded to. Even before being selected as a preferred bidder it spent six months developing detailed prototypes and, once chosen, it spent another six months on a detailed project plan. Only in September 2012 was the €100m contract finally signed.

Crucial to its success will be how the implementation – the open-heart surgery – is managed. The first stage, which is expected to take much of this year, is creating a series of roadmaps, in which each and every Lufthansa Cargo process is carefully delineated to be sure that it is catered for by iCargo.

Once the implementation proper gets underway, it will be done in nine iterations – that is, nine stages. In each, a particular function – for example sales or ULD management – is put in place, configured and then tested, before the next iteration is started.

Once all nine stages are complete, the whole system will be configured and tested in the Lufthansa data centre, and then there are hundreds of interfaces to other systems to be put in place – for example a link to the Lufthansa passenger system so that updated flight information is fed seamlessly to the cargo side.

Then, all the historical data has to be migrated from the old system to the new, and 4,000 employees in 100 locations trained on it. This last part is a particular challenge.
“They can’t be trained too early or they will forget, but equally we can’t train everyone at the same time,” says Mathews. “So people in Lufthansa have to become well-versed in the system so they can help their colleagues. The good thing is that iCargo is also very intuitive and has a lot of self-learning packages.”

Finally, the system will go live in two or three phases, rather than in one big bang. “The advantage of this is that you mitigate the risk, though of course there is an extra effort as the two systems have to work side by side for a while, exchanging data.”

While Lufthansa is an important win for IBS, it already has quite a good track record in air cargo, with ANA, Qantas, South African Airways and many smaller carriers on iCargo’s customer list. Unlike Lufthansa Cargo, most of these have opted for a hosted rather than a licensed app-roach – that is, IBS has the application in its own data centre and the carriers access it via data or internet links, rather than having the system in their own datacentre, as Lufthansa Cargo will be doing.

Hosted applications – also known as Software as a Service – are something that IT companies have been touting for some time, and Mathews says that they are now really becoming the standard approach.

Even IBS’s two existing licensed customers – ANA and Qantas – are now in talks to switch to a hosted model, he says.

Two factors are driving this trend. One is that hosted applications have got better at dealing with customisation. When ANA chose iCargo in 2009, it felt it needed lots of special functions for the Japanese market, for example, and this is why it finally went for a licensed approach.

But, as Mathews points out, this has some big disadvantages for the carriers concerned, not least that they cannot benefit from further upgrades and new functionality added to the main system – for example to cope with e-freight or a new security requirement – without expensive upgrades to their in-house system.

By contrast, all hosted customers benefit automatically from any upgrade IBS makes to iCargo, and they also benefit from new ideas that come from other hosted customers. That is, one carrier asks for a particular new function, and it is then made available to all of the others.

The key here, Mathews reveals, is configurability. If an airline asks for a particular upgrade, IBS considers whether it should be part of the roadmap for iCargo – that is, whether it can become a standard feature. If so, it is then made available to other hosted carriers and the cost of developing it is shared by them. Carriers can switch on or off that feature on their hosted service, as they wish.

If an airline wants a specific new function to be kept private to itself, then it has to pay all the development costs, as well as any future maintenance costs.

But Mathews says such cases are increasingly rare. “If you look at the industry forums – IATA and so on – the same problems and ind-ustry trends are being discussed by all airlines. The business advantage to any one carrier comes not from having the functionality on the IT system, but having the processes to make the best use of it.”

The other factor favouring the hosted approach is that running IT data centres is no longer something that most companies do for themsel-ves. When airlines were pioneers of IT, they were also experts at running and maintaining the box in the basement, but now almost everyone outsources that to a third party.

For example, Qantas keeps its licensed version of iCargo in an IBM datacentre. “So the question is not really – hosted or licensed? It is: which is the best company to run a datacentre for you,” Mathews says.
“At IBS we have datacentres in New Jersey, Japan and India and soon we will have one in Australia too. We think it makes more sense for us, with our experience both of iCargo and working with datacentres worldwide, to host and maintain the application ourselves.”

However it is done, there seems no doubt that the remaining legacy systems will be eliminated from the air cargo industry in the next few years, and Mathews is sure that when that happens there will be a big revolution in the way information is handled in air cargo.

“All the benefits of e-freight and other such projects cannot be realised until most airlines have made the switch,” he says. “Once that happens, it will be unbelievable the changes we will see.

“Ninety per cent of the transit time for air cargo is spent not moving but waiting to move. So the potential benefits of next-generation platforms are enormous.”